Monday, 13 May 2013

Africa CEOs upbeat about global economy

TRUST in the world’s businesses and their leaders has hit a record low, a new global survey finds, but that lack of faith is not extending to investment flow into Africa.

A global leadership study by PwC says that a "powerful dilemma" faces leaders around the world as they try to rebuild trust through engagement and attract and retain the best talent, while trying to keep down costs. Only one in five of the 1,300 CEOs in the survey believe the global economy will improve over the coming year, but this pessimism does not seem to apply to African CEOs.

In South Africa, for example, only 9% of CEOs are "extremely concerned" about shifting consumer spending habits, compared with 16% of global CEOs. A problem that is keeping all CEOs awake at night, however, is the lack of skills.

Investors became seriously concerned about South Africa’s prospects earlier this year when African National Congress heavyweights criticised listed companies over their cost-cutting plans and as strike action continued.

South Africa’s image has still not recovered from the Marikana bloodbath, but this does not mean investment has dried up or that the trust deficit has knocked the ability to attract foreign capital.
The latest fDi Intelligence report says South Africa was the second-highest destination country in the Middle East and Africa last year for foreign direct investment, with 147 projects.
But the South African version of the global survey found that a significant proportion of local CEOs believe the greatest opportunities for growth lie outside South Africa.

"This is perhaps as much a reflection of constraints within the domestic economy as it is of the great opportunities that lie in fast-growing emerging markets," says PwC Africa territory senior partner Suresh Kana.

Mining, energy, engineering and construction companies had reported the most chronic shortage of skilled employees worldwide in the survey.

The availability of key skills was pegged as the second-biggest threat to business growth, just after the increasing tax burden (63%).

This comes as South Africa’s government cuts mandatory grants, or reimbursements, that are paid back to companies that engage in sector education training, and the tax base gets threatened, according to some tax experts, by the limitation of excessive interest deductions on numerous debt-related transactions and the addition of a 15% withholding tax on interest for foreigners later this year.

The best employees want to work for an organisation of which they can be proud, and the survey found that 57% of CEOs said they would increase their focus on encouraging a culture of ethical behaviour in the next 12 months.

While South Africa was spared major banking failures during the recent crisis, the aftermath is continuing to be felt in Europe — 40% of CEOs based in Western Europe said they planned further headcount cutbacks this year — and contagion to South Africa cannot be ruled out as Europe remains a major trading partner.

However, CEOs are willing to improve their investment in skills — 61% plan to increase investment in their labour force over the next three years.

Cost-cutting remains a priority for the vast majority of CEOs, with 84% of CEOs saying they have initiated restructuring activities in the past 12 months.

"The years of cost reductions have brought risk, mainly around people — morale and employee engagements have taken a knock," says Gerald Seegers, director of human resource services at PwC Southern Africa.

PwC is not convinced by the fact that 77% of CEOs say they will change their strategy for managing talent this year as the researchers say "CEOs have told us the same thing for the past six years".
"This suggests either that the changes they’ve made aren’t working, or that their plans have never been put into practice.

"Clearly, a fundamental rethink of the established approach to talent strategy is needed. It’s a time for strong leaders to come to the fore," say the researchers.

While the sector education system has been criticised for raising the tax burden and being ineffective, the government hopes the changes it is implementing will improve workplace training and root out what a study discovered to be private sector abuses of the system. Companies doing genuine training could receive a reimbursement of more than 50%.

"Of course, you have to pay people the market price, or they’ll leave. But treatment of people is also important. Even in China, if people are well-treated and see opportunities, they’ll stay — at least most of them will," says president and CEO of Georg Fischer in Switzerland, Yves Serra.

"I worry enormously about skills. Statistics from the UK and US on the number of kids studying science, technology, engineering and mathematics show that we’re not actually creating enough people with the necessary skills today to fuel the industry in the future," says Steve Holliday, CEO of the National Grid Group in the UK.

South Africa’s Skills Development Act, which defined a sector training and education authority (Setas) system, came into force in 1998 with a plan to develop a series of sector skills plans within a clearly defined framework of the National Skills Development Strategy. South Africa’s unemployment rate remains in the doldrums despite the management of the Setas moving from labour to higher education in 2009.

According to the PwC survey, while 31% of global CEOs are not concerned about the availability of key skills, only 11% of the 50 South African CEOs are not concerned. And while 17% of global CEOs are "extremely concerned" by it, a full 36% of South African CEOs fall into that more worrying category — up from the 19% of 2011 and 28% of 2010 — a time when the effects of the global recession were still being felt. Ironically, the ability to finance growth is not too much of a problem, illustrating how the link between the lack of jobs and poor growth continues to bedevil South Africa.

While 13% of global CEOs are extremely concerned about an inability to finance growth, only 2% in South Africa are.

"CEOs’ recognition that trust has been eroded over the past few years is correct, and this is something that needs to be urgently addressed. We believe that rebuilding trust with employees by creating the right culture and behaviours is one of the fundamental pillars around which organisations need to shape their business," say the PwC researchers.

But current pay models need to be challenged.

The survey finds that a third of CEOs feel that pay-for-performance models are not working as they were intended, and 31% feel executive-pay models have become far too complex.